Starbucks Pays Up!
25 June 2013
Posted by: Author: Robert Lee
Author: Robert Lee
Following up on its pledge to pay the UK an additional GBP20m (USD30.8m) in tax over the next two years, coffee company Starbucks has announced the handover of the first GBP5m instalment.
Starbucks took the unprecedented step last December of committing to pay HM Revenue and Customs (HMRC) a higher corporation tax than is currently required by law. Hearings held by the influential Public Accounts Committee revealed that while Starbucks has around 760 outlets in the UK, it had paid no corporation tax since 2008, and a total of just GBP8.6m in 14 years of trading there.
It is Starbucks' alleged unprofitability in the UK that has resulted in its paying little or no corporation tax. Kris Engskov, Managing Director of Starbucks in the UK, said at the time that the company had not performed as expected during its time in business there. Nevertheless, as Engskov explained, the agreement to pay somewhere in the region of GBP10m in each of the next two years, over and above the taxes Starbucks already pays, came because customers expected more to be done when it came to tax. The payment would be made regardless of whether Starbucks was profitable in 2013 or 2014.
A statement released this weekend by a Starbucks spokeswoman confirmed the GBP5m payment. The spokeswoman stressed that the company "felt our customers should not have to wait for us to become profitable before we started paying UK corporation tax." As a result, it had "decided to forgo certain deductions which would make us liable to pay GBP10m in corporation tax this year and a further GBP10m in 2014."
The company will in future take measures to make Starbucks profitable in the UK, the spokeswoman added. Methods include "relocating unprofitable stores to more cost effective locations, closing them where that is not possible and placing greater reliance on franchised and licensed stores."
A further instalment of GBP5m will be made to HMRC later this year.
This does not however appear to have satisfied critics like Hodge. Commenting on the initiative, Hodge said: "Companies should not be able to pick and choose how much tax they pay. We need a system which ensures that everybody pays a fair share of tax on the profits they gain from the economic activity they undertake."